Business Use of Your Home

Many direct sellers work out of their own homes and have business expenses for using their homes. You can deduct certain expenses for using your home if you meet the following tests.

Qualifying for a Deduction

To deduct expenses related to the business use of your home, you must meet the following tests. Even then your deduction may be limited. See Deduction limit, later.

1. Your use of the business part of your home must be:
   1. Exclusive (however, see Exception under Exclusive use, later),
   2. Regular,
   3. For your trade or business, AND
2. The business part of your home must be one of the following:
   1. Your principal place of business,
   2. A place where you meet or deal with clients or customers in the normal course of your trade or business, or
   3. A separate structure (not attached to your home) used in connection with your trade or business.

Exclusive use. "Exclusive use" means you use a specific part of your home solely for carrying on your direct-selling business. You do not meet the exclusive use test if you use the area in question for your direct-selling business and that same part for personal purposes.

Example. You use a den in your home to write orders and do the paperwork for your business. The den is also used by your children to do their homework. You cannot claim any business deduction for the use of the room.

Exception. If you use part of your home for the storage of inventory or product samples, you can claim expenses for the business use of your home without meeting the exclusive use test. However, you must meet all the following tests.

• You keep the inventory or product samples for use in your direct-selling business.
• Your home is the only fixed location of your business.
• You use the storage space on a regular basis.
• The space you use is separately identifiable and suitable for storage.

Example. Your home is the sole fixed location of your business. You regularly use half your basement for storing inventory as well as for personal purposes. You can deduct the expenses for the storage space even though this part of your basement is not used exclusively for business.

Regular use. Regular use means you use a specific part of your home for business on a continuing basis. Occasional or incidental business use of part of your home does not meet the regular use test even if you do not use that part for any other purpose.

Principal place of business. Your home office will qualify as a principal place of business if you meet both the following requirements.

1. You use it exclusively and regularly for the administrative or management activities of your trade or business.
2. You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

Alternatively, if you do business at more than one location and your home does not qualify as your place of business based on these rules, you determine your principal place of business based on the following factors.

1. The relative importance of the activities performed at each location.
2. The time spent at each location if the relative importance factor does not determine your principal place of business.

Place to meet clients or customers. If you meet with clients or customers in your home in the normal course of your direct selling business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if both the following apply.

• You physically meet with clients or customers on your premises.
• Their use of your home is substantial and integral to the conduct of your business.

You do not qualify to deduct expenses for the business use of your home if you have only occasional meetings or telephone calls.

Separate structure. You can deduct the expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. This structure does not have to be your principal place of business or a place where you meet clients or customers.

Deduction limit. If the gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses. If your gross income is less than your total business expenses, the deduction for certain expenses for the business use of your home is limited.

Where to deduct. If you qualify to deduct expenses for the business use of your home, you must figure your deduction on Form 8829 and attach it to Form 1040. You deduct the expenses on Schedule C (Form 1040).

More information. For more information, including how to figure the deduction, see Publication 587.